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RLI Corp (RLI 1.02%)
Q4 2018 Earnings Conference Call
Jan. 24, 2019, 11:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
See all our earnings call transcripts.
Prepared Remarks:
Operator
Good morning and welcome ladies and gentlemen to the RLI Corp. Fourth Quarter Earnings Teleconference. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen only mode. At the request of the Company, we will open the conference up for questions and answers after the presentation.
Before we get started, let me remind everyone that through the course of the teleconference, RLI Management may make comments that reflect their intentions, beliefs and expectations for the future. As always, these forward-looking statements are subject to certain risk factors, which could cause actual results to differ materially. These risk factors are listed in the Company's various SEC filings, including in the Annual Form 10-K, which should be reviewed carefully. The Company has filed a Form 8-K with the Securities and Exchange Commission that contains the press release announcing fourth quarter results.
RLI Management may make reference during the call to operating earnings and earnings per share from operations, which are non-GAAP measures of financial results. RLI's operating earnings and earnings per share from operations consist of net earnings after the elimination of after tax realized investment gains or losses. RLI's Management believes this measure is useful in gauging core operating performance across reporting periods, but may not be comparable to other companies' definitions of operating earnings. Thus Form 8-K contains a reconciliation between operating earnings and net earnings, the Form 8-K and press release are available at the Company's website at www.rlicorp.com.
I will now turn the conference over to RLI's Vice President, Corporate Development, Mr. Aaron Jacoby. Please go ahead, sir.
Aaron Jacoby -- Vice President, Corporate Development
Thank you. Good morning to everyone. Welcome to the RLI earnings call for the fourth quarter of 2018. Joining me on today's call are Jon Michael, Chairman and CEO; Craig Kliethermes, President and Chief Operating Officer; and Tom Brown, Senior Vice President and Chief Financial Officer. I'm going to turn the call over to Tom first to give some brief opening comments on the quarter's financial results. Then, Craig will talk about operations and market conditions. Next, we'll open the call to questions and Jon will finish up with some closing comments. Tom?
Thomas L. Brown -- Senior Vice President, Chief Financial Officer
Thanks, Aaron, and good morning, everyone. For the fourth quarter, we reported operating earnings per share of $0.40 bringing the full year to $2.05. Like to provide a high level view of some key drivers of these results. Starting with underwriting profit, we came in at a 98.9 combined ratio. You'll recall that we had pre-announced losses from Hurricane Michael of $22 million to $27 million and the quarter ended up with recorded losses of $23 million at the lower end of our range, or $19.6 million net of bonus related expense offsets. This added about 10 points to the quarter's combined ratio. Partially offsetting the hurricane loss was $9.6 million of net favorable development on prior year's reserves, up from $5.2 million in the fourth quarter 2017. Our Casualty segment was primary contributor to the favorable development and offset a modest amount of adverse development in the Surety segment, which was primarily due to two losses from the early 2000s.
Turning to premium volume, gross premiums written in the fourth quarter was up 12%. Casualty grew 16%, supported by a number of our traditional products, such as general liability, excess casualty, executive products and transportation, as well as certain of our newer casualty lines. Property grew 9% driven by marine, up 28%, while Surety was also slightly up. Craig will talk more about these trends in a minute.
From an investment perspective, we continue to record higher levels of investment income, which was up 17% in the quarter. Driving this trend are higher reinvestment yields and a larger invested asset base, while duration and credit quality are relatively unchanged. The equity markets were particularly volatile in the fourth quarter. However, we remain steadfast to our long-term approach of using risk assets, including equities to diversify our investment portfolio and maximize total return.
Outside the core investment portfolio, our share of income from investments in Maui Jim and Prime was slightly positive. Both investments continue to perform well, although for Maui Jim the fourth quarter is low from a seasonal perspective and face the difficult comparison to last year's quarter, which had a one-time benefit due to tax reform.
From a tax standpoint, let me spend a minute on our effective tax rate. You may recall that on our fourth quarter 2017 call, we said our expected effective rate would likely be in the 15% to 18% range as a result of tax reform. We still expect that to be the case, but there are a couple of considerations that materially lowered the effective tax rate for the full year 2018.
First, a new accounting rule adopted in 2018 required us to record unrealized changes in the value of our equity portfolio through net earnings as opposed to comprehensive earnings in prior years. This not only creates significant volatility, but periods with significant unrealized losses like we experienced in 2018, we ended up with a sizable reduction in pre-tax income, which then increases the percentage impact of tax preference items in the effective tax rate calculation. Additionally, tax reform passed in 2017 left tax free treatment unresolved for certain deferred tax items. Clarifying language issuing the fourth quarter enable us to realize additional tax benefits in 2018. Stripping out both these items, our effective tax rate would be in line with our previously communicated expectations.
Now, I'd like to provide some commentary on the full year results. For the full year, the combined ratio was 94.7, notably 2018 represented the second consecutive year of very active catastrophes for us and the industry as a whole. In total, our underwriting income was $34 million lower due to the net impacts of cat losses accounting for 4.4 combined ratio points. By comparison, 2017 was impacted by a similar amount.
Meanwhile, from a reserving perspective, we recorded full year net favorable development on prior accident years reserves of $44.3 million, up from last year's $37.5 million. This year's favorable development came from each of our segments, three segments and from majority of our underlying products, including modest favorable development from transportation. RLI's methodical approach to underwriting and reserving are both testaments to our culture.
From a premium growth perspective, we reported 11% growth. While this was largely driven by our Casualty and Property segments, Surety also contributed modest growth under extremely competitive market conditions. We are pleased by the growth in newer products, such as energy liability and general binding authority, but even more pleased with the growth from our mature Casually products, such as general liability, umbrella, transportation and executive products as well as in the Property segment.
We ended the year with 11% operating return on equity despite a heavy year of catastrophic events. This allowed us to return excess capital to shareholders in the form of $1 special dividend. In 2018, we marked the 43rd consecutive year of paying and increasing our quarterly dividend, while the special dividend upped our cumulative return to shareholders to $1.2 billion in the last 10 years.
And with that, I'll turn the call over to Craig. Craig?
Craig W. Kliethermes -- President and Chief Operating Officer
Thank you, Tom. Good morning, everyone. I want to provide some overall comments about the quarter and then get into some segments specific results and conclude by summing up the year.
As Tom referenced, we reported 12% top-line growth and a 99 combined ratio for the quarter. Pretty good results for our Company, given the impact of Hurricane Michael. Despite the loss estimate coming in at the low end of the range we previously reported, Hurricane Michael was a very severe storm and the event resulted in the largest hurricane loss in RLI's history. It was also our largest single event loss since the Northridge earthquake and the first time we ceded loss to our catastrophe treaty since 2005. The fact that we were able to sustain Michael and still achieve an overall underwriting profit for the quarter and an underwriting profit in our Property segment for the year, given the other catastrophes that occurred, is further evidence of our well diversified specialty portfolio and resiliency.
Growth for the quarter remained widespread across our portfolio with drivers being a healthy mix of newer products, underlying economic growth and increased marketing efforts in our more established products and rate increases in select spots. We have generally found that the market is coming to us, creating opportunities, where some pain points are starting to be felt by our competitors. We see this in terms of increased submission activity across most of our portfolio. Rates are still relatively flat, but upward is needed most. Despite the improved opportunities, we pride ourselves on our consistency of underwriting appetite and pricing, with the willingness to let accounts go where we have to, staying true to our strong disciplined underwriting culture.
I'll now dive into a little more detail by segment. In Casualty, we were able to grow 16% for the quarter and reported 94 combined ratio. This growth was broad-based, with only a few product exceptions. We continue to see very good growth opportunities in our commercial and personal umbrella businesses through a combination of increased marketing efforts, modest rate increases and investments in technology and customer experience, which are starting to pay off.
Our executive products portfolio continued to realize growth as they focus on diversification within their space. Transportation grew 13%, but almost all of that was rate driven. We feel very good about the progress we've made over the last two years in transportation. We ended the year with back to back double-digit rate increases in this sector and actual estimates have stabilized and even improved in more recent accident years. We have the team that can succeed in all markets and we will continue to push rate in 2019. We will look for exposure growth opportunistically as the commercial auto market remains in turmoil.
We continue to get a healthy amount of growth from newer products that were added over the last several years, including energy casualty, binding authority, cyber liability and a new captive program we added in late 2018. Overall, reserve releases were pretty robust and broadly felt in the Casualty segment and are larger year-over-year both on the quarter and for the entire calendar year. We believe we have a pretty good handle on loss costs, but continue to monitor them vigilantly. For the year, we ended with top-line up 12% and 98 combined ratio for the Casualty segment.
Moving on to Property. This segment suffered the impact of Hurricane Michael for the quarter, reporting a 130 combined ratio, while growing top-line 9%. As expected, the brunt of the Michael impact was felt in our non-admitted property business. For the quarter, we continue to see moderate rate increases in wind with relatively flat rates on earthquake. Given the catastrophe activity in 2017 and 2018, we would hope that the market will respond with some moderate firming or at least provide some floor on pricing going forward.
The catastrophe market is still a place we are finding opportunities to write new business, as the market rates rise to our level. As a side note, RLI was very minimally affected by the California wildfires and the Anchorage earthquake that occurred late in the quarter. In other property products, marine continues to grow and add scale, while keeping its loss ratio in check. There is some market disruption in marine with several competitors announcing exits or pairing their business. We have achieved six consecutive years of positive rate increase in marine and the improved economy continues to drive exposure growth on existing accounts.
Finally, our Hawaii homeowners business top-line continues to benefit from renewed marketing efforts and from recognition of the exceptional claims service our team provided, following the volcano losses. For the year, the Property segment reported 16% top-line growth and a 99 combined ratio.
In Surety, we were able to grow top-line 1% for the quarter and reported an 84 combined ratio. We have had solid performance across all four of the major products in our portfolio. We provide ourselves in our deep knowledge and consistent risk appetite. Competition remains very difficult in this segment and discipline is critical for long-term success. We will continue to take advantage of the opportunities that arise, try to build more depth with relationships that recognize our value proposition, invest in technology and ease of doing business and prepare for the next market opportunity. We ended the year with 1% top-line growth and an exceptional 75 combined ratio.
Before I conclude, I want to cover a few activities that took place late in the quarter. About half of our reinsurance spend is placed at year-end with our broadest Casualty and Property treaties renewing. We generally saw flat pricing with little change in our retentions. Two changes of note were that we did buy $90 million more catastrophe cover at 1.1 because of some past and expected growth in exposures. And we paid about 10% more for our Property per risk cover due to loss activity in recent years. After factoring an exposure growth, this will result in an additional $5 million to $6 million estimated spend on property reinsurance for the coming year.
I also want to offer a bit of color on some portfolio repositioning we have done in our Casualty segment recently. As you know, our strong culture of discipline and ownership requires that we constantly assess our portfolio products. Complacency is the enemy of success. We invest and nurture those products that show promise, manage risk reward trade offs and address underperformers with haste. As a result, we recently announced an exit of our healthcare facility business and we are also in process of exiting an underperforming book of general liability business for real estate investment trust.
In addition, we work closely with Prime insurance with whom we have a 23% ownership stake to diversify their panel of reinsurers. This will reduce our quota share relationship downward from 25% to 6% participation starting on January 1st of this year. In light of Prime's continued rapid growth, we believe this was in both parties' best interest. The impact of all these changes removes approximately $50 million of top-line casualty premium going forward, while improving the bottom-line margins. Although, these decisions were not easy, we believe all of these moves to be healthy for our organization and enhances our ability to continue to outperform.
RLI ended 2018 with 11% top-line growth and a 95 combined ratio. Accomplished a lot of great things this year that I'd like to recognize. We achieved our 23rd consecutive year of underwriting profit, while sustaining our largest aggregate catastrophe losses in over two decades. We delivered broad-based growth across most of our portfolio and ended with the highest gross and net premium in our history. Both our professional services group and marine who have struggled in difficult markets achieved underwriting profitability.
Our transportation business has stabilized and continues to realize growth through rate. We had favorable loss reserve development across most of our portfolio and an aggregate that exceeded prior year. Investments in marketing and technology are starting to pay off and we repositioned our portfolio for improved balance and profitability, which is the stewardship we expect in demand of ourselves as shareholders.
We had solid performance across all segments and products in our portfolio, much like my beloved Kansas City Chiefs. We had a great year, not as good as we liked, but we're excited about the future. We have exceptional talent, particularly in skill positions and we're making the investments and changes needed to make sure we can continue to compete at the highest level going forward. The future is bright. I want to thank all of the RLI associate owners for their relentless focus on underwriting profitability, customer service and execution. We are different and different worked again in 2019.
I will turn it back to Aaron.
Aaron Jacoby -- Vice President, Corporate Development
Thank you, Craig. Operator, we can now open the call for questions.
Questions and Answers:
Operator
Thank you, sir. A question-and-answer session will begin at this time. (Operator Instructions) Please standby for your first question. One moment. And we will go ahead with our first question from Randy Binner of B. Riley FBR. Please go ahead.
Randy Binner -- B. Riley FBR -- Analyst
Hey, good morning. Thanks. I had a question, I guess, about the reinsurance treaty renewal. And, Craig, I think you mentioned that you added an additional $90 million of cover for the price of $5 million. So I want to make sure I understood that and just maybe understand a little bit better where the $90 million fits on top of the reinsurance coverage you already had.
Craig W. Kliethermes -- President and Chief Operating Officer
Sure. Randy, this is Craig. The -- effectively, we bought -- added a $100 million to our tower. Now, we take a 10% co-participation on that. So that's why -- you do the math, it's 90 points or $90 million, we added to the top of our tower. Now, just to be clear on the additional premium, that included the per risk treaty that we -- we're going to pay about $2 million for the per risk treaty, so that $5 million that I referenced, $2 million of that is in our per risk treaty not in the cat part of it. And about half of that cat cover is because of the additional exposure that we're going to add over the year, plus the other half is really just for the $90 million of coverage. Okay?
Randy Binner -- B. Riley FBR -- Analyst
And if this is exposure adding in basically hurricane wind zones. Is that the right way to think about it?
Craig W. Kliethermes -- President and Chief Operating Officer
No, we've added -- yeah. I mean, we've added it over the last year, right. And we continue to think we're going to see a few opportunities going forward. So -- I mean, we want to continue to be in a good place in regards to covering PMLs and things, so we want to make sure we constantly relook at that.
Randy Binner -- B. Riley FBR -- Analyst
Okay. So is it largely PML neutral all that because the growth kind of grows into it?
Craig W. Kliethermes -- President and Chief Operating Officer
I mean, I would say that we're going to buy to about the same PML as we bought last year. Does that makes sense?
Randy Binner -- B. Riley FBR -- Analyst
Yep. And then on the -- so the less premium casualty, you -- I think you mentioned -- so it's easy to model the loss of the 50, but then we have to figure out the bottom-line impacts. So you said, it would improve the bottom-line. But -- I mean -- I guess, can you expand on how we might think about that from maybe a loss pick perspective or how that book might change with that much less premium?
Craig W. Kliethermes -- President and Chief Operating Officer
Well, I mean -- I guess, I can help by giving a little bit of ideas. I mean, the -- I mean, it was probably performing that group of business. I mean, take out the Prime part because Prime actually is then fairly profitable for us. I mean, that had performed in excess of a 110 combined ratio, somewhere in the 110 to 125 combined ratio. So...
Randy Binner -- B. Riley FBR -- Analyst
That's perfect. Thank you.
Operator
And we'll go ahead with our next question from Christopher Campbell of KBW. Please go ahead.
Christopher Campbell -- KBW -- Analyst
Yes. Hi, good morning, gentlemen.
Craig W. Kliethermes -- President and Chief Operating Officer
Good morning.
Christopher Campbell -- KBW -- Analyst
So just following up on Randy's question real quick. So the $50 million of premium that you're not going to have in 2019, that was at a 110 combined ratio and higher?
Craig W. Kliethermes -- President and Chief Operating Officer
The healthcare and the real estate investment trust portion of that, yes, which is, I will say, a little less than half of the total that I quoted.
Christopher Campbell -- KBW -- Analyst
Okay. And then, why would you -- if the Prime part is more profitable, I guess, why would you eliminate the quota share or reduce the quota share on that? I guess...
Thomas L. Brown -- Senior Vice President, Chief Financial Officer
Chris, it's Tom. As Craig said in his comments, it was a collective effort. They have grown rather substantially and no different than what RLI and probably any number of well run insurance companies typically diversify their panel of reinsurers and we were the sole reinsurance market for them for a number of years, so it's a diversification. They've got some very good players on that panel. It does come with a little bit of a price rate. Our participation goes down and we do model it as well and try to hold the line as to the totality of that too -- or as a percentage of our overall book. So it was kind of a win-win. And as Craig said, that piece of it's been profitable to us.
Christopher Campbell -- KBW -- Analyst
Got it.
Thomas L. Brown -- Senior Vice President, Chief Financial Officer
And just to be clear...
Christopher Campbell -- KBW -- Analyst
(Multiple Speakers) profitable, will there be an option -- or I mean, will there be an opportunity to increase your ownership of Prime? Then -- I mean, if they -- I understand, they might want to diversify their panel of reinsurers and that would derisk it for them. But from your perspective, would it make more sense just to own more of Prime then?
Thomas L. Brown -- Senior Vice President, Chief Financial Officer
That's really not within our control. The owner of that is -- the principal is the majority shareholder at this time. And if an opportunity came up, we would certainly take a look at it.
Christopher Campbell -- KBW -- Analyst
Got it. That makes sense. And then just, can we get an update on what you're seeing on the commercial auto and GL loss trends? I mean, we've heard from some primary competitors that they've been like boosting their current year commercial auto loss picks? And I was just wondering, if you're seeing something similar in terms of like elevated bodily injury trends in your commercial auto book?
Craig W. Kliethermes -- President and Chief Operating Officer
This is Craig. I mean, we obviously -- we did see an increase in that a couple of years back, it's stabilized over the last two or three years. So it's stabilized at a little bit more elevated level, I'd say mid single-digit, maybe a little higher -- 6% or so loss cost inflation, but we've been getting double-digit rate increases over the last two years. So -- and as far as the loss ratios, our loss ratios have also stabilized to -- and seeing some slight improvement in recent years because of the price.
Christopher Campbell -- KBW -- Analyst
Got it. And I think you had said, like transportation, but maybe in the script and I just -- I might have missed the actual number, but it was like 13% rate increases, you're saying you're seeing about 6% loss cost increases. When do we start seeing -- and I know you're trying to be extra conservative, given the prior commercial auto, like, reserve headwinds you had. But, I mean, at what point does like the loss pick come down on that business? Do you start getting more comfortable with the existing reserves? Because I'm thinking like a 7% margin should eventually like cycle into more reserve releases.
Craig W. Kliethermes -- President and Chief Operating Officer
So -- I mean, we actually did have favorable development in transportation this quarter, but we have kept our, what we call, our booking ratio or the loss ratio for current accident years flat year-over-year. And I won't say an abundance of caution, but to take a more cautious approach. So what's happened is as we kept that flat, we saw some favorable development and we've taken it, but those are on prior years, so we continue to be, I'll say, I don't know if conservative is the right word, we think smart with the current accident years.
Christopher Campbell -- KBW -- Analyst
Got it. And then just kind of one ancillary question on Maui Jim. I know, it's probably not for sale, but, I mean, have you had that appraised recently? And then, I guess, how much was the book value of RLI, what you have it on the book be impacted, if it were like mark-to-market to your financial?
Craig W. Kliethermes -- President and Chief Operating Officer
Yeah. We have not really had Maui Jim appraised recently, but I think the book value is in the 70s, we're carrying it in the 70s, so we think there's extra value there, if you will.
Christopher Campbell -- KBW -- Analyst
Okay, so $70 million it's on the books?
Craig W. Kliethermes -- President and Chief Operating Officer
That's the carrying -- that's the equity basis value on the books. Yeah.
Christopher Campbell -- KBW -- Analyst
Got it. So what percentage of that is do you own?
Craig W. Kliethermes -- President and Chief Operating Officer
40%.
Christopher Campbell -- KBW -- Analyst
Got it. Great. Thanks for all the answers. Best of luck in 2019.
Craig W. Kliethermes -- President and Chief Operating Officer
Thank you.
Operator
We'll go ahead with our next question from Jeff Schmitt of William Blair. Please go ahead.
Jeff Schmitt -- William Blair -- Analyst
Hi. Good morning, everyone. Just looking at losses ex-cat in that Casualty book, I mean, they look to be high 60s, maybe even 70%. They've been under 65% for a while up until probably 2017. Obviously, you're adding there in the commercial auto, but it seems there are probably some other drivers there. Are you -- are there any particular lines that you're strengthening there or is it more broad-based?
Thomas L. Brown -- Senior Vice President, Chief Financial Officer
Jeff, this is Tom Brown. That's primarily, where some of these newer products that Craig mentioned reside in that segment. So we do take a little longer-term view of those to see them mature. So it would -- that would result in a mix change. And we just think that's the appropriate way to view that as they're small and growing.
Craig W. Kliethermes -- President and Chief Operating Officer
I mean, we've also seen growth in our, I'll say, our umbrella, particularly our commercial umbrella business, which we tend to be conservative because it's a bigger limits and little longer tail. And the same thing with our D&O book, we take a much more longer-term approach to where we're going to book the year to. So -- and it will just take a little bit longer to play out. So -- and that is where we've seen some additional growth.
Jeff Schmitt -- William Blair -- Analyst
Is that umbrella are you seeing losses impact that from commercial auto? I mean, sort of increased severity there, is that flowing through and hitting umbrellas?
Craig W. Kliethermes -- President and Chief Operating Officer
No. Well, I'm not -- let me just speak for RLI specifically because in our commercial umbrella space, we limit significantly the amount of underlying auto exposure. We don't really like risks with a lot of underlying auto exposure. So we've not seen some of those trends, I think -- so the earlier person that asked a question about trends in the general liability and umbrella, we have not seen that and most of our book of general liability and umbrella is in the contractor space with very little auto exposure in the umbrella.
Jeff Schmitt -- William Blair -- Analyst
I see. Okay. Okay. And are you seeing -- and I know you'd mentioned in the past seeing kind of a more active plaintiff bar, probably particularly in commercial auto. But do you have any more anecdotal evidence in other lines that you're seeing that?
Craig W. Kliethermes -- President and Chief Operating Officer
We have not seen it. Really it's been isolated into the transportation business, the commercial auto and very specifically into trucks and public autos. Those limits we typically carry -- the insurers carry a little higher limits. The accidents obviously involved in that space can be quite severe. There's usually pictures involved, they can have gruesome injuries, they play well in front of juries, at least what we've seen is that's where the plaintiff bar has been focused. As I mentioned, in our general liability and commercial umbrella space, most of that's contractors, those involve accidents on the job site, a lot of those are -- they're not little more complicated, there's not really photos running around and maybe not as graphic, they maybe fell off a ladder or something like that, a lot of closed wound injuries type of things that don't -- at least, they haven't nibbled on yet I guess the plaintiff bar hasn't yet.
Jeff Schmitt -- William Blair -- Analyst
Okay. Thank you.
Operator
We'll go ahead with our next question from Bijan Moazami of Compass Point. Please go ahead.
Bijan Moazami -- Compass Point -- Analyst
Good morning, everyone. I'm trying to get a better understanding of commercial auto book that you guys write. In particular, how big is the commercial auto book? What kind of products you guys are writing? Is it mostly physical damage liabilities that are cargo component to it? And is it really trucking, two trucks, what are you writing in there? And how much of your growth is coming from commercial auto? And then I have a follow up question.
Craig W. Kliethermes -- President and Chief Operating Officer
Bijan, this is Craig. So transportation books about a $100 million book of business. It's spread across three segments, long haul trucking, which are typically larger fleet, trucks are not really individual owner operator business, that's not really the business we're in. Public autos, which could be charter buses, school buses, any kind of public bus. And then we have, what we call, specialty commercial auto group, which could write anything from careers to ambulances to other types of specialty commercial auto business. As far as growth, almost all of our growth in the last couple of years has come from rate, so we have grown, but it's mostly been rate. So I think that was what your question was.
Bijan Moazami -- Compass Point -- Analyst
Yeah. You're not picking up a lot of new business there.
Craig W. Kliethermes -- President and Chief Operating Officer
Well, you're always -- I mean, you retain 75%, 80% of your business, so there's always some portion of your business that's new business, but we're not (Multiple Speakers) rapid -- it's not rapid growth in the new sectors or new accounts necessarily. We only write about 600 accounts in this whole sector, OK, these are accounts mostly we know, we've either insured either currently or in the past, so it's a fairly narrow niche space that we play in.
Bijan Moazami -- Compass Point -- Analyst
And what I was trying to understand is that you're not getting into, let's say, two trucks, are you?
Craig W. Kliethermes -- President and Chief Operating Officer
That's not a growth area for us, no. No taxis...
Bijan Moazami -- Compass Point -- Analyst
Yeah. The other question has to do with DIC. If you could clarify how much DIC you're writing? What's your PML, especially to an earthquake in California? And then finally, what are you seeing in terms of price writing in the DIC products? Thank you.
Craig W. Kliethermes -- President and Chief Operating Officer
Well, this is Craig again. From DIC, I mean, first of all, I think our disclosures in our -- we have this disclosure in our K that shows what our earthquake exposure is by PML, so I mean, I going to refer you to that. As far as a percentage of our overall premium, it's about 4% of our overall gross written premium. It's pretty small relative to the Company, at least relative to some historical parts of the Company.
Bijan Moazami -- Compass Point -- Analyst
And is pricing going up or down in that segment?
Craig W. Kliethermes -- President and Chief Operating Officer
The overall rates are going up. The rates we're seeing are relatively flat because we've been pretty consistent market with our pricing, so we are seeing a lot more submissions come in. So we're seeing more new business because the rates are -- the market rates are coming to the level that's acceptable for us to write.
Bijan Moazami -- Compass Point -- Analyst
Thank you.
Craig W. Kliethermes -- President and Chief Operating Officer
Welcome.
Operator
(Operator Instructions) And we will go ahead with our next question from Mark Dwelle from RBC Capital Markets. Please go ahead.
Mark Dwelle -- RBC Capital Markets -- Analyst
Yeah. Good morning. Just a couple of questions related to -- I mean, you had indicated that you ceded some loss under -- in the quarter under the reinsurance contracts. Can you just walk through, which line items were impacted? Obviously, the loss the loss line was. But what was the impact on earned premium or expense ratio or anything else?
Craig W. Kliethermes -- President and Chief Operating Officer
Mark, I'm not sure I understand the question. I mean, I know we -- I did say we ceded to our cat treaty.
Mark Dwelle -- RBC Capital Markets -- Analyst
I guess, was there any additional ceded premium associated with reinstatement or anything like that?
Craig W. Kliethermes -- President and Chief Operating Officer
No. No, those are all prepaid -- we have prepaid reinstatement on our cat and our per risk treaty has -- there is no reinstatement provision. So all the premium is paid.
Mark Dwelle -- RBC Capital Markets -- Analyst
In that case --
Craig W. Kliethermes -- President and Chief Operating Officer
There was no top-line impact.
Mark Dwelle -- RBC Capital Markets -- Analyst
Okay. The insurance operating expenses then in the quarter were below the recent quarter run rate, so it was obviously below last year's as well. Was there anything particular that led to that outcome? I had thought perhaps it related to the reinsurance session, but apparently not.
Thomas L. Brown -- Senior Vice President, Chief Financial Officer
Mark, it's Tom Brown. No, it's actually two things. Let me just -- let me go back to reflect a bit on 2017. It was probably a little over historic norms because of tax reform and the impact that had on our compensation arrangements, so that I think was a little closer if I recall off the top my head about 44% expense ratio. This year's is kind of the opposite. The impact of the catastrophes, particularly Michael has another direct impact on our incentive and bonus arrangements. So the 38% expense ratio this quarter and a lower amount for the full year is really impacted by that, which I think really demonstrates when we talk about the alignment of our compensation arrangements, they truly are aligned with the underwriting performance. So those two have a -- are the primary reasons for the lower overall ratio this year compared to last year. And I think expectations would be short of another catastrophe event more in line with the 40 to low 40s expense ratio.
Mark Dwelle -- RBC Capital Markets -- Analyst
And that would be probably the same reason then for a little bit lower general corporate expense in the quarter, just reversal of prior accruals or whatnot?
Thomas L. Brown -- Senior Vice President, Chief Financial Officer
Yeah. It impacts both lines, correct.
Mark Dwelle -- RBC Capital Markets -- Analyst
Okay. That's the -- that's all my questions I had and otherwise been asked. Thanks very much.
Thomas L. Brown -- Senior Vice President, Chief Financial Officer
Thank you.
Operator
There are no further questions, I will now turn the conference back to Mr. Jonathan Michael.
Jonathan E. Michael -- Chairman & Chief Executive Officer
Thank you all. A good quarter, a good year. For the quarter, combined ratio was 98.9 in-spite of Michael losses of about $20 million, premiums were up 12%, investment income up 17%. The year premiums were up 11%, investment income 13%. That's our 23rd consecutive year of underwriting profitability. Discipline and diversification remain the hallmarks of our model. In the past year, our associates delivered to our policy over during their time of extreme need, while continuing to deliver to our shareholders. Thank you all for attending and we look forward to talk to you next quarter. Thanks.
Operator
Ladies and gentlemen, if you wish to access the replay for this call, you may do so by dialing 1888-203-1112 with an ID number of 8948169. This concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect. Thank you.
Duration: 38 minutes
Call participants:
Aaron Jacoby -- Vice President, Corporate Development
Thomas L. Brown -- Senior Vice President, Chief Financial Officer
Craig W. Kliethermes -- President and Chief Operating Officer
Randy Binner -- B. Riley FBR -- Analyst
Christopher Campbell -- KBW -- Analyst
Jeff Schmitt -- William Blair -- Analyst
Bijan Moazami -- Compass Point -- Analyst
Mark Dwelle -- RBC Capital Markets -- Analyst
Jonathan E. Michael -- Chairman & Chief Executive Officer
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